Q2 2026 LPL Financial Holdings Inc Earnings Call

July 30, 2026

Speaker #1: Audette, Rich, and Matt will offer introductory remarks and then the call will be open for questions. The company would appreciate if analysts would limit themselves to only 1 question.

Speaker #1: To ask a follow-up, please re-enter the queue. The company has posted its earnings press release and supplementary information on the investor relations section of the company's website, investor.lpl.com.

Speaker #1: Good afternoon, and thank you for joining the second quarter 2026 earnings conference call for LPL Financial Holdings, Inc. Joining the call today are Chief Executive Officer Rich Steinmeier and President and Chief Financial Officer Matt Audette.

Speaker #1: Today's call will include forward-looking statements, including statements about LPL Financial's future financial and operating results, outlook, business strategies, and plans. As well as other opportunities and potential risks that management foresees.

Speaker #1: and Matt will offer introductory remarks, and then the call will be open for questions. The company would appreciate if analysts would limit themselves to only one question.

Speaker #1: Such forward-looking statements reflect management's current estimates or beliefs and are subject to known and unknown risks and uncertainties that may cause actual results or the timing of events to differ materially from those expressed or implied in such forward-looking statements.

Speaker #1: For more information about such risks and uncertainties, the company refers listeners to disclosures set forth under the caption "Forward-looking Statements" in the earnings press release.

Speaker #1: As well as the risk factors and other disclosures contained in the company's recent filings with the securities and exchange commission. During the call, the company will also discuss certain non-GAAP financial measures.

Speaker #1: For a reconciliation of such non-GAAP financial measures to comparable GAAP figures, please refer to the company's earnings release which can be found at investor.lpl.com.

Speaker #1: For more information about such risks and uncertainties, the company refers listeners to disclosures set forth under the caption forward-looking statements in the earnings press release.

Speaker #1: With that, I'll now turn the call over to Mr. Steinmeier.

Speaker #2: Thanks, Operator. And thank you to everyone for joining our call. It's a pleasure to speak with you again. After a strong start to the year, we continued our momentum in Q2.

Speaker #2: We delivered improved organic growth during the quarter, while driving recruiting pipelines to record levels. We made meaningful progress in preparing to onboard Comwealth Financial Network.

Speaker #1: For a reconciliation of such non-GAAP financial measures to comparable GAAP figures, please refer to the company's earnings release, which can be found at investor.lpl.com.

Speaker #2: And we drove material improvements in our operating leverage. We achieved this in a rapidly evolving environment as elevated macroeconomic uncertainty and market volatility at the start of the quarter gave way to a sharp market recovery during the quarter.

Speaker #1: With that, I'll now turn the call over to Mr. Steinmeier.

Speaker #2: Thanks, operator. And thank you to everyone for joining our call. It's a pleasure to speak with you again. After a strong start to the year, we continued our momentum in Q2.

Speaker #2: Serving as the latest reminder of the value of professional advice and the resilience of our business model. Underlying this consistent performance was the exceptional work and dedication of our teams including the talented colleagues who joined us from Comwealth.

Speaker #2: We delivered improved organic growth during the quarter while driving recruiting pipelines to record levels. We made meaningful progress in preparing to onboard Commonwealth Financial Network.

Speaker #2: And we drove material improvements in our operating leverage. We achieved this in a rapidly evolving environment, as elevated macroeconomic uncertainty and market volatility at the start of the quarter gave way to a sharp market recovery during the quarter.

Speaker #2: In recognition of these efforts, JD Power ranked Comwealth and LPL number 1 and number 2 for independent advisor satisfaction. Comwealth Award is its 13th straight number 1 ranking.

Speaker #2: This is a remarkable achievement and a meaningful validation of the complementary nature of our organization and the culture we are building together. Now, to highlight some of our Q2 results, in the quarter, total client assets were $2.6 trillion up 10% from Q1 as organic growth was complemented by higher equity markets.

Speaker #2: In recognition of these efforts, J.D. Power ranked Commonwealth and LPL number one and number two for independent advisor satisfaction. Commonwealth's award is its 13th straight number one ranking.

Speaker #2: We attracted organic net new assets of $23 billion representing a 4% annualized growth rate. Our second quarter business results translated into another quarter of strong financial performance with record adjusted EPS of $5.84.

Speaker #2: Turning to our strategic plan, we remain unwavering in our strategy and our aspiration to be the best firm in wealth management. To that end, we remain focused on 3 key priorities.

Speaker #2: We attracted organic net new assets of $23 billion, representing a 4% annualized growth rate. Our second quarter business results translated into another quarter of strong financial performance, with record adjusted EPS of $5.84.

Speaker #2: One, preserving the client centricity the firm was built on. Two, empowering our employees to deliver exceptional outcomes for our advisors and institutions and their clients.

Speaker #2: And three, delivering improved operating leverage. Continued execution across these priorities will help us sustain our industry-leading growth while advancing the effectiveness and efficiency of our model.

Speaker #2: Turning to our strategic plan, we remain unwavering in our strategy and our aspiration to be the best firm in wealth management. To that end, we remain focused on three key priorities.

Speaker #2: With that as context, let's review a few business highlights from the quarter. In Q2, recruited assets improved to $25 billion. Prior to large institutional wins, this was our strongest quarter of recruiting in nearly 2 years.

Speaker #2: One, preserving the client-centricity the firm was built on. Two, empowering our employees to deliver exceptional outcomes for our advisors, institutions, and their clients.

Speaker #2: During Q2, we continued to advance opportunities into the later stages of our recruiting pipeline and despite the strong pull-through, the overall pipeline reached a new record.

Speaker #2: And, three, delivering improved operating leverage. Continued execution across these priorities will help us sustain our industry-leading growth while advancing the effectiveness and efficiency of our model.

Speaker #2: This positions us well for improved organic growth in the second half of the year. In our traditional markets, we added approximately $23 billion in assets during Q2, maintaining our industry-leading capture of advisors in motion, while continuing to expand the depth and breadth of our recruiting pipeline.

Speaker #2: With respect to our expanded affiliation models, we delivered another solid quarter recruiting roughly $2 billion in assets. Turning to overall asset retention, it was 97% for both the second quarter and over the last 12 months.

Speaker #2: During Q2, we continued to advance opportunities into the later stages of our recruiting pipeline and despite the strong pull-through, the overall pipeline reached a new record.

Speaker #2: This positions us well for improved organic growth in the second half of the year. In our traditional markets, we added approximately $23 billion in assets during Q2, maintaining our industry leading capture of advisors in motion, while continuing to expand the depth and breadth of our recruiting pipeline.

Speaker #2: This is a testament to our continued efforts to enhance the advisor experience through the delivery of new capabilities and technology, and the ongoing evolution of our service and operations functions.

Speaker #2: Now, let's turn to Comwealth. The integration is progressing well, and we remain on track to onboard Comwealth advisors in the fourth quarter. In terms of asset retention, we are in the mid-80s today, and we continue to work towards our target of 90% retention of client assets.

Speaker #2: From an operational standpoint, we are nearing the completion of the technology and capability builds needed to help facilitate a seamless conversion. Key initiatives include advancing our householding capabilities, and modernizing our case management platform to support a more connected end-to-end service experience for existing Comwealth advisors.

Speaker #2: This is a testament to our continued efforts to enhance the advisor experience through the delivery of new capabilities and technology, as well as the ongoing evolution of our service and operations functions.

Speaker #2: Now, let's turn to Commonwealth. The integration is progressing well, and we remain on track to onboard Commonwealth advisors in the fourth quarter. In terms of asset retention, we are in the mid-80s today, and we continue to work towards our target of 90% retention of client assets.

Speaker #2: When combined with the introduction of a single relationship agreement, this creates a more flexible, relationship-centric model that improves the client experience and enhances advisor productivity.

Speaker #2: These capabilities not only enable the Comwealth conversion, but also accelerate the delivery of core functionality for the benefit of all LPL advisors and institutions.

Speaker #2: From an operational standpoint, we are nearing the completion of the technology and capability builds needed to help facilitate a seamless conversion. Key initiatives include advancing our householding capabilities and modernizing our case management platform to support a more connected end-to-end service experience for existing Commonwealth advisors.

Speaker #2: In parallel, we are ramping up our training efforts to ensure that our Comwealth teammates are positioned to continue delivering exceptional service to existing Comwealth advisors and that Comwealth advisors and their support staff are ready to hit the ground running following the conversion to the LPL platform.

Speaker #2: In closing, the second quarter was another strong quarter for LPL. I want to take a moment to thank our entire team both at LPL and Comwealth for the dedication and hard work that drove these results.

Speaker #2: These capabilities not only enable the Commonwealth conversion, but also accelerate the delivery of core functionality for the benefit of all LPL advisors and institutions.

Speaker #2: In parallel, we are ramping up our training efforts to ensure that our Commonwealth teammates are positioned to continue delivering exceptional service to existing Commonwealth advisors, and that Commonwealth advisors and their support staff are ready to hit the ground running following the conversion to the LPL platform.

Speaker #2: And contributed to the recognition from JD Power. We are building something special, and I am incredibly proud of the passion and dedication our teams bring to supporting our advisors.

Speaker #2: As we look ahead, we remain well positioned to serve as a critical partner to our advisors and institutions to continue delivering industry-leading organic growth, and to maximize long-term value for shareholders.

Speaker #2: In closing, the second quarter was another strong quarter for LPL. I want to take a moment to thank our entire team both at LPL and Commonwealth for the dedication and hard work that drove these results.

Speaker #2: With that, I'll turn the call over to Matt.

Speaker #3: Thanks, Rich. I couldn't agree more. It was a tremendous quarter. As the team continues to deliver remarkable results. To reiterate some of these highlights, we delivered solid improvement in organic growth, continued to advance our advisor experience, drove improved operating leverage through ongoing efficiency gains and better monetization of the value we deliver to clients, progressed our preparation to onboard Commonwealth, and executed on our capital allocation strategy where we closed the acquisition of Mariner Advisor Network, remained active with our liquidity and succession capability, and given the dislocation in our stock price, accelerated share purchases.

Speaker #2: And contributed to the recognition from J.D. Power. We are building something special, and I am incredibly proud of the passion and dedication our teams bring to supporting our advisors.

Speaker #2: As we look ahead, we remain well positioned to serve as a critical partner to our advisors and institutions to continue delivering industry leading organic growth and to maximize long-term value for shareholders.

Speaker #2: With that, I'll turn the call over to Matt.

Speaker #3: These efforts resulted in strong second quarter business and financial performance and positioned us well for the second half of the year. Now, turning to a few highlights from our Q2 business results.

Speaker #3: Total client assets were $2.6 trillion, up 10% from Q1, as continued organic growth was complemented by higher equity markets. Total organic net new assets were $23 billion, and approximately 4% annualized growth rate.

Speaker #3: As for our Q2 financial results, the combination of organic growth and expense discipline led to an adjusted pre-tax margin of approximately $39.3% and record adjusted EPS of $5.84.

Speaker #3: Total client assets were $2.6 trillion. Up 10% from Q1, as continued organic growth was complemented by higher equity markets. Total organic net new assets were $23 billion and approximately 4% annualized growth rate.

Speaker #3: Gross profit was $1,618,000,000, up 26 million sequentially. As for the key drivers, commission and advisory fees net of payout were $486,000,000, down $1,000,000 from Q1.

Speaker #3: As for our Q2 financial results, the combination of organic growth and expense discipline led to an adjusted pre-tax margin of approximately $39.3% and record adjusted EPS of $5.84.

Speaker #3: Our payout rate was 87.4%, up 22 basis points from Q1, largely due to the typical seasonal build in the production price. Looking ahead, we expect our payout rate will increase by approximately 80 basis points in Q3, driven by typical seasonality as well as the previously announced reductions to our corporate advisory pricing that went into effect on July 1st.

Speaker #3: Gross profit was 26 million sequentially. As for the key drivers, commission and advisory fees net of payout were $486 million, down $1 million from Q1.

Speaker #3: With respect to client cash revenue, it was $457,000,000, down $3 million from Q1, primarily reflecting lower average cash balances. Overall client cash balances ended the quarter at $56.9 billion down 2.2 billion.

Speaker #3: Our payout rate was 87.4%, up 22 basis points from Q1, largely due to the typical seasonal build in the production process. Looking ahead, we expect our payout rate will increase by approximately 80 basis points in Q3, driven by typical seasonality as well as the previously announced reductions to our corporate advisory pricing that went into effect on July 1.

Speaker #3: Within our ICA portfolio, the mix of fixed-rate balances ended the quarter at roughly 60% within our target range of 50 to 75 percent. Looking more closely at our ICA yield, it was 336 basis points in Q2, unchanged sequentially.

Speaker #3: With respect to client cash revenue, it was $457 million, down $3 million from Q1, primarily reflecting lower average cash balances. Overall client cash balance is end of the quarter at $56.9 billion, down 2.2 billion.

Speaker #3: One item of note is that we are shifting our client sweep rate methodology from an asset-based tiering structure to a cash balance-based tiering structure.

Speaker #3: As a result, as we look ahead to Q3, we expect our ICA yield to increase by 10 basis points. As for service and fee revenue, it was $209,000,000 in Q2, down $2 million from Q1.

Speaker #3: Within our ICA portfolio, the mix of fixed rate balances end of the quarter at roughly 60% within our target range of 50 to 75 percent.

Speaker #3: Looking more closely at our ICA yield, it was 336 basis points in Q2, unchanged sequentially. One item of note is that we are shifting our client sweep rate methodology from an asset-based tiering structure to a cash balance-based tiering structure.

Speaker #3: Looking ahead to Q3, we expect service and fee revenue to increase by approximately $5 million, driven by revenues from our annual focus costs. Moving on to Q2 transaction revenue, it was $83,000,000, up 2 million from Q1, driven by record trading volumes and one additional trading day during the quarter.

Speaker #3: As a result, as we look ahead to Q3, we expect our ICA yield to increase by 10 basis points. As for service and fee revenue, it was $209 million in Q2, down $2 million from Q1.

Speaker #3: As we look ahead to Q3, we expect transaction revenue to decline by roughly $5 million. Now, turning to our acquisition at Commonwealth. As Rich mentioned, the transaction continues to progress well, and we remain on track to onboard Commonwealth advisors in the fourth quarter.

Speaker #3: Looking ahead to Q3, we expect service and fee revenue to increase by approximately $5 million, driven by revenues from our annual focus costs. Moving on to Q2 transaction revenue, it was $83 million, up $2 million from Q1, driven by record trading volumes and one additional trading day during the quarter.

Speaker #3: As for the financials, accounting for current market levels, we now estimate run rate EBITDA of approximately $435,000,000 once fully integrated. Now, let's move on to expenses, starting with core G&A.

Speaker #3: It was $519,000,000 in Q2, down 13 million sequentially, and below the low end of our outlook range reflecting our continued progress in driving greater efficiency, and reducing our cost to serve.

Speaker #3: For the full year, given our progress to date, we are lowering our core G&A outlook range. We now anticipate 2026 core G&A to be in a range of $2,140,000,000 to $2,165,000,000.

Speaker #3: As for the financials, accounting for current market levels, we now estimate run rate EBITDA of approximately $435 million once fully integrated. Now, let's move on to expenses, starting with core G&A.

Speaker #3: To give you a sense of the near-term timing of this spend, we expect Q3 core G&A to be in the range of $540,000 to $560,000,000.

Speaker #3: It was $519 million in Q2, down $13 million sequentially, and below the low end of our outlook range reflecting our continued progress in driving greater efficiency, and reducing our cost to serve.

Speaker #3: Turning to TA loan amortization. It was $142,000,000 in Q2, up $6 million from Q1. As we look ahead to the third quarter, we expect TA loan amortization to increase to approximately $150,000,000, reflecting strengthening advisor recruiting.

Speaker #3: For the full year, given our progress to date, we are lowering our core G&A outlook range. We now anticipate 2026 core G&A to be in a range of $2.14 billion to $2.165 billion.

Speaker #3: As for promotional expense, it totaled $79,000,000 in the second quarter, up $3 million from Q1, driven by increased conference spending. Looking ahead to Q3, we expect promotional expense to increase to approximately $95,000,000, driven by conference spend.

Speaker #3: To give you a sense of the near-term timing of this spend, we expect Q3 core G&A to be in the range of $540,000 to $560,000,000.

Speaker #3: Turning to depreciation amortization, it was $110,000,000 in in Q2, up $4 million sequentially. Looking ahead, we continue to invest in technology and expect depreciation and amortization to increase by roughly $8 million in Q3.

Speaker #3: Moving to our tax rate, it was approximately $26.4% in Q2, and we expect a similar level in Q3. Regarding capital management, we ended Q2 with corporate cash of $430,000,000, down $137,000,000 from Q1.

Speaker #3: Turning to depreciation and amortization, it was $110 million in Q2, up $4 million sequentially. Looking ahead, we continue to invest in technology and expect depreciation and amortization to increase by roughly $8 million in Q3.

Speaker #3: As for our leverage ratio, it was 1.9 times at the end of Q2, near the midpoint of our target range. Moving on to capital deployment, our framework remains the same, focused on allocating capital aligned with the returns we generate.

Speaker #3: Investing in organic growth first and foremost, pursuing M&A where appropriate, and returning excess capital to shareholders. In Q2, we deployed capital across our entire framework.

Speaker #3: As we continue to invest to drive and support organic growth, close the acquisition of Mariner Advisor Network, remained active with our liquidity and succession capability, and returned capital to shareholders.

Speaker #3: Specific to share purchases, while our initial plan was to repurchase $125,000,000 of our stock in Q2, the dislocation in our share price presented an attractive opportunity to deploy additional capital.

Speaker #3: Investing in organic growth first and foremost, pursuing M&A where appropriate, and returning excess capital to shareholders. In Q2, we deployed capital across our entire framework.

Speaker #3: So we accelerated repurchases to $309,000,000. Additionally, in July, our board approved a new $2.5 billion repurchase authorization. With $300,000,000 planned for the third quarter.

Speaker #3: In closing, we delivered another quarter of strong business and financial results. As we look forward, we remain excited about the opportunities we have to continue to drive growth, deliver operating leverage, and create long-term shareholder value.

Speaker #3: So we accelerated repurchases to $309,000,000. Additionally, in July, our board approved a new $2.5 billion repurchase authorization. With $300,000,000 planned for the third quarter.

Speaker #3: With that operator, we are finally ready to open the call for questions.

Speaker #1: Certainly. And as a reminder, ladies and gentlemen, please limit yourself to one question each. If you'd like a follow-up question, you may re-enter the queue.

Speaker #1: Our first question comes from the line of Alexander Blostein, from Goldman Sachs. Your question, please.

Speaker #2: Hi. Good afternoon. Thank you for taking the question. So I was hoping to start with the outlook on organic growth. Obviously, June saw a nice pickup, and you talked about a recruiting pipeline looking pretty robust.

Speaker #3: With that operator, we are finally ready to open the call for questions.

Speaker #2: So maybe spend a minute on how you view organic growth for the second half of the year, whether or not NNA can sustain above five.

Speaker #1: Certainly. And as a reminder, ladies and gentlemen, please limit yourselves to one question each. If you'd like a follow-up question, you may re-enter the queue.

Speaker #2: And also, coupled with that, we continue to hear a pretty competitive landscape for recruiting curious how that squares away with your with the outlook you're seeing for the back half of the year.

Speaker #1: Our first question comes from the line of Alexander Postine from Goldman Sachs. Your question, please.

Speaker #2: Thanks.

Speaker #3: Yeah. Hey, Alex with Rich. Thanks for the question and nice to hear from you. So maybe let's talk about the recruiting well, let's talk about organic growth through the balance of the year.

Speaker #3: I think we saw that we've got a rebound in this quarter up to the 4%. Look, there's a couple of things that drove that.

Speaker #2: So maybe spend a minute on how you view organic growth for the second half of the year, whether or not N&A can sustain above 5%.

Speaker #2: And also, coupled with that, we continue to hear about a pretty competitive landscape for recruiting. Curious how that squares away with the outlook you're seeing for the back half of the year.

Speaker #3: First is that we saw advisor movement move back in line with historical norms. That's important for us. As we capture a disproportionate share of the advisors in motion, and any movement to that overall advisor movement, we're going to be one of the winners who benefit in that movement.

Speaker #2: Thanks.

Speaker #3: Yeah. Hey, Alex, with Rich. Thanks for the question, and nice to hear from you. So maybe let's talk about the recruiting—well, let's talk about organic growth through the balance of the year.

Speaker #3: And so I'd say there's a macro movement improvement that helped us aligned with our long-term share capture of advisors in motion. Second, and this continues and you heard in prepared remarks, Commonwealth is largely coming towards the end of the recruiting and education event.

Speaker #3: I think we saw that we've got a rebound in this quarter, up to 4%. Look, there's a couple of things that drove that.

Speaker #3: First is that we saw advisor movement move back in line with historical norms. That's important for us, as we capture a disproportionate share of the advisors in motion. With any movement to that overall advisor movement, we're going to be one of the winners who benefit from that movement.

Speaker #3: We still have advisors out to continue to progress with them, to problem-solve with them, to get to solutioning with them. And so it's not completely over.

Speaker #3: But as we have continued on that journey, we've seen more and more of our capacity to go back into the marketplace and engage directly with advisors.

Speaker #3: And so, I'd say there's a macro movement improvement that helped us align with our long-term share capture of advisors in motion. Second, and this continues, and you heard in prepared remarks, Commonwealth is largely coming towards the end of the recruiting and education event.

Speaker #3: And so when you think about that second half of the year, we should be able to return to more normalized levels, not only of recruiting, but continuing to build pipeline.

Speaker #3: And so that makes us confident in our ability to deliver mid to high single-digit growth over time. If you extend even further out and look at our long-term outlook, I think this is where we even strengthen our conviction even further.

Speaker #3: We still have advisors out to continue to progress with them, to problem-solve with them, to get to solutioning with them. And so, it's not completely over.

Speaker #3: We continue to be the disproportionate winner in our traditional markets. We have an unmatched value proposition, and that actually continues to strengthen. When we look at the wirehouse and regional advisor movement, largely, we have been continued to gain consideration, which is really important for us because as we speak to those advisors, we more often than not are one of the winners in those conversations, but we have to get into more conversations.

Speaker #3: But as we have continued on that journey, we've seen more and more of our capacity to go back into the marketplace and engage directly with advisors.

Speaker #3: And so, when you think about that second half of the year, we should be able to return to more normalized levels—not only of recruiting, but continuing to build pipeline.

Speaker #3: So we do that by closing our capability gap, which we continue to do in quarter and throughout the balance of the year. I alluded to some of those even in prepared remarks.

Speaker #3: And continuing more importantly to actually position our brand actively in the marketplace. So you saw us do that a year ago with our brand campaign.

Speaker #3: Additionally, we've announced a partnership with the PGA of America that we think will continue to progress our representation not only to advisors, but to their high net worth end investors, which is critically important as they consider a firm that they're going to consider moving to.

Speaker #3: So, we do that by closing our capability gap, which we continue to do in-quarter and throughout the balance of the year. I alluded to some of those even in prepared remarks.

Speaker #3: And then maybe lastly, in the institutional channel, this is one where we had to pause a little bit in our consideration of large opportunities to bring onto the platform because of the Commonwealth transition was so extensive and the build was so comprehensive.

Speaker #3: And continuing more importantly to actually position our brand actively in the marketplace. So you saw us do that a year ago with our brand campaign.

Speaker #3: Additionally, we've announced a partnership with the PGA of America that we think will continue to progress our representation not only to advisors, but to their high-net-worth end investors, which is critically important as they consider a firm that they're going to consider moving to.

Speaker #3: And now as we move towards being on the other side of that and finishing our capability builds, it opens up our ability to continue to progress pipeline in the institutional channel with opportunities to onboard them.

Speaker #3: You marry that with low attrition and steady contribution from the same store sales. And again, I look at that longer outlook and say, "Okay, I think we have a strong ability to sustain mid to high single-digit growth." Maybe lastly to that competitive environment, I think it's completely fair representation.

Speaker #3: It remains spirited. We saw about a year ago, we saw a move in market TA levels. They have continued to persist at higher elevated levels.

Speaker #3: And now, as we move towards being on the other side of that and finishing our capability builds, it opens up our ability to continue to progress pipeline in the institutional channel, with opportunities to onboard them.

Speaker #3: And from our perspective, we stay disciplined on returns. TA is part of our conversation with advisors, but it's not the driver. Kind of repeat this pretty regularly, but advisors who are changing firms think first about capabilities, technology, and service.

Speaker #3: You marry that with low attrition and steady contribution from same-store sales. And again, I look at that longer outlook and say, "Okay, I think we have a strong ability to sustain mid- to high-single-digit growth." Maybe lastly, to that competitive environment—I think it's a completely fair representation.

Speaker #3: They then think about ongoing economics. And third, they think about upfront economics. So you put that all together, we feel incredibly strong in our ability to not only sustain our performance, to improve it over the latter half of the year.

Speaker #3: It remains spirited. About a year ago, we saw a move in market TA levels. They have continued to persist at higher, elevated levels.

Speaker #1: Thank you. And our next question comes from the line of Steven Chubak, from Wolf Research. Your question, please.

Speaker #4: Hi. Good afternoon, Rich and Matt. And thanks for taking my question. I was hoping to get an update on the pricing review.

Speaker #3: They then think about ongoing economics. And third, they think about upfront economics. So you put that all together. We feel incredibly strong in our ability to not only sustain our performance, to improve it over the latter half of the year.

Speaker #3: I like that pause, Steven. I like that pause. That is our and our fault. We were not gracious hosts there. Thank you.

Speaker #4: That you were not, but all is forgiven, rest assured. I was hoping to get an update on the pricing review. Just now that you're further along in the diligence process, what has been some of the early feedback from advisors as you've explored potential pricing changes?

Speaker #1: Thank you. And our next question comes from the line of Steven Schubach from Wolfe Research. Your question, please.

Speaker #4: And what are some of the key milestones that need to be met as part of the review to get you and the board comfortable with adopting or implementing any such pricing changes to minimize the reliance on cash economics?

Speaker #4: Hi. Good afternoon. Richard Matt. And thanks for taking my question. I was hoping to get an update on the pricing review.

Speaker #3: I'd like to pause, Steven. I like that pause. That is our not our fault. We were not gracious hosts there. Thank you.

Speaker #3: Yeah. Hey, thanks, Steven. So like we said last quarter, we're actually doing that work. And I think we need to make sure we take that time as you've probed properly.

Speaker #3: To think and ensure that any potential solutions that we come up with, one, that they're well-considered, that we are looking at it from all angles, that it's aligned with our long-term strategy, and that it creates value for our advisors, for our institutions, and for the clients that they serve.

Speaker #4: And what are some of the key milestones that need to be met as part of the review to get you and the Board comfortable with adopting or implementing any such pricing changes to minimize the reliance on cash economics?

Speaker #3: And so I'll give you a little bit of color why this may take us a little more time. We've exploded the types of advisors and institutions that we serve.

Speaker #3: Yeah. Hey, thanks, Steven. So like we said last quarter, we're actually doing that work. And I think we need to make sure we take that time as you've probed properly to think and ensure that any potential solutions that we come up with, one, that they're well-considered, that we are looking at it from all angles, that it's aligned with our long-term strategy, and that it creates value for our advisors, for our institutions, and for the clients that they serve.

Speaker #3: If you think about the two business models that we have, in our advisor business, we've grown our affiliation models pretty dramatically, and that looks like different profiles of advisors.

Speaker #3: Who have different compositions of their book. And similarly on the institution side, we no longer just serve banks and credit unions. We serve large regional banks, national banks.

Speaker #3: We serve product manufacturers. And so the complexity of the type of clients that we serve is pretty comprehensive. Maybe extensive. We've got to make sure, and we're engaged with those clients, to ensure as we build any solution and evaluate those solutions across 32,000 advisors, 1,000-plus institutions, and 8 million end investors, that they work the solutions work across those clients and their operating models.

Speaker #3: And so I'll give you a little bit of color why this may take us a little more time. We've exploded the types of advisors and institutions that we serve.

Speaker #3: Who have different compositions of their book. And similarly, on the institution side, we no longer just serve banks and credit unions. We serve large regional banks, national banks; we serve product manufacturers.

Speaker #3: The levers are very clear to us. But as we go through the work, we have to make sure that it works for those constituents and that's the update that we have on the work.

Speaker #3: And so, the complexity of the type of clients that we serve is pretty comprehensive—maybe extensive. We've got to make sure, and we're engaged with those clients to ensure as we build any solution and evaluate those solutions across 32,000 advisors, 1,000-plus institutions, and 8 million end investors, that they work—the solutions work—across those clients and their operating models.

Speaker #3: We're doing that work. We don't have any precise updates on the completed work to date. But we'll make sure to update you when there's more to share.

Speaker #1: Thank you.

Speaker #4: Couple of colors.

Speaker #1: Our next question comes from the line of Dan Fenton, from Jeffrey's. Your question, please.

Speaker #4: Great. Thanks. Matt, I was hoping you could expand upon the G&A outlook, the numbers continue to come in better. Then you have forecast, as you think about the back half of the year, are you still implementing some of these efficiencies?

Speaker #3: The levers are very clear to us, but as we go through the work, we have to make sure that it works for those constituents, and that's the update that we have on the work.

Speaker #3: We're doing that work. We don't have any precise updates on the completed work to date, but we'll make sure to update you when there's more to share.

Speaker #4: So to think about the ongoing benefits, or is obviously what you're putting in the numbers today is that realistic based upon the what you guys have done so far?

Speaker #4: Proper color.

Speaker #1: Our next question comes from the line of Dan Fenton from Jefferies. Your question, please.

Speaker #2: Yeah, Dan. I mean, I think you look if you look at the trends. I think the headline answer is this is, I think, an evergreen thing.

Speaker #4: Great, thanks. Matt, I was hoping you could expand upon the G&A outlook. The numbers continue to come in better than you have forecast. As you think about the back half of the year, are you still implementing some of these efficiencies?

Speaker #2: I mean, the continued investments whether it be automation, efficiency, AI-driven things, that do two things. They not only improve our efficiency and drive down our costs.

Speaker #4: So, to think about the ongoing benefits—or is, obviously, what you're putting in the numbers today—is that realistic based upon what you guys have done so far?

Speaker #2: They also improve our value proposition with our advisors. So I think that's something we're going to consistently do. And I think what you're seeing so far this year is some outperformance on the pace at which we're able to do those things.

Speaker #2: Yeah, Dan. I mean, I think if you look at the trends, the headline answer is that this is, I think, an evergreen thing.

Speaker #2: So I think it's been a couple of quarters in a row we've been able to deliver more efficiencies than we expected. And we're able to lower the guidance for the year.

Speaker #2: I mean, the continued investments, whether it be automation, efficiency, AI-driven things, do two things. They not only improve our efficiency and drive down our costs.

Speaker #2: So to underscore the guidance for the year includes everything that we have worked on and everything that we expect to work on. And I think you've seen us, there's been periods where we've met that.

Speaker #2: There's been periods where we've done better than we expected. So I think that now core G&A growth of 4 to 5 and a half percent prior to Commonwealth is our best estimate right now.

Speaker #2: But I think if you broaden that out, I think there is each and every year, I think we're going to be able to continue to drive investments.

Speaker #2: So I think it's been a couple of quarters in a row we've been able to deliver more efficiencies than we expected. And we're able to lower the guidance for the year.

Speaker #2: And again, underscore it's not only about efficiencies, but it's improving the value proposition in our experience with our clients.

Speaker #2: So to underscore, the guidance for the year includes everything that we have worked on and everything that we expect to work on. And I think you've seen us, there's been periods where we've met that.

Speaker #4: Thank you.

Speaker #2: There's been periods where we've done better than we expected. So I think that now core G&A growth of 4 to 5 and a half percent prior to Commonwealth is our best estimate right now.

Speaker #1: Thank you. And our next question comes from the line of Devin Ryan from Citizens Bank. Your question, please.

Speaker #5: Great. Hi, Rich. Hi, Matt. A lot of good stuff in here. I want to ask about Rich's point you made. Advisors care about capabilities and tech when they're thinking about moving firms.

Speaker #2: But I think if you broaden that out, I think there is each and every year, I think we're going to be able to continue to drive investments.

Speaker #2: And again, underscore, it's not only about efficiencies, but also about improving the value proposition and our experience with our clients.

Speaker #5: And so with that said, it would be good to get some color on this AI platform latitude. I saw you just launched that or announced it a couple of days ago.

Speaker #5: And so just be good to hear about kind of functionally what are the capabilities for advisors? Are there ways you can think about framing how it can help their productivity?

Speaker #4: Thank you.

Speaker #1: Thank you. And our next question comes from the line of Devin Ryan from Citizens Bank. Your question, please.

Speaker #5: And then how differentiated is it versus just table stakes? I know that may connect back to your recruiting pitch or just making the firm more attractive for institutions to think about partnering with you.

Speaker #5: Great. Hi, Rich. Hi, Matt. A lot of good stuff in here. I want to ask about Richard's point you made. Advisors care about capabilities and tech when they're thinking about moving firms.

Speaker #5: Thank you.

Speaker #5: And so with that said, it would be good to get some color on this AI platform latitude. I saw you just launched that or announced it a couple of days ago.

Speaker #3: Yeah. Hey, thanks, Devin. So I think one, technology has always been important for advisors who are considering moving firms. It's usually one of the first things we go through.

Speaker #5: And so just be good to hear about kind of functionally what are the capabilities for advisors? Are there ways you can think about framing how it can help their productivity?

Speaker #3: In fact, recently, we continue to accelerate in our home office visits our tech demos earlier in the sales process. The reason being that what feedback we get from advisors is that there is a material differentiation in our capabilities and technology than the competitors that they're looking at.

Speaker #5: And then how differentiated is it versus just table stakes? I know that may connect back to your recruiting pitch, or just making the firm more attractive for institutions to think about partnering with you.

Speaker #3: And I would tell you, as we get through a tech demo, what we see is we win in head-to-head more often than we did even a year ago.

Speaker #5: Thank you.

Speaker #3: Yeah. Hey, thanks, Devin. So I think one, technology has always been important for advisors who are considering moving firms. It's usually one of the first things we go through.

Speaker #3: Because through the last couple of years, you've seen us continue to enhance our investments made in technology. And I think the latitude announcement is a reflection of that.

Speaker #3: In fact, recently, we continue to accelerate our home office visits and our tech demos earlier in the sales process. The reason being that the feedback we get from advisors is that there is a material differentiation in our capabilities and technology compared to the competitors they're looking at.

Speaker #3: We reflected that we've invested nearly $2 billion over the last few years. And building the core foundational capabilities and our data security, advisor technology, and AI, latitude is the reflection of our unified tech experience that ties all of that together.

Speaker #3: And I would tell you, as we get through a tech demo, what we see is we win in head-to-head more often than we did even a year ago, because through the last couple of years, you've seen us continue to enhance our investments made in technology.

Speaker #3: It's crisper way to reflect the integrated nature of our technology ecosystem that we think is a really good reflection to advisors. And as they get in, they see the connectivity across all of that.

Speaker #3: And I think the latitude announcement is a reflection of that. We reflected that we've invested nearly $2 billion over the last few years. In building the core foundational capabilities and our data security, advisor technology, and AI, latitude is the reflection of our unified tech experience that ties all of that together.

Speaker #3: It's no longer a separation of the advisor workstation and the end investor capabilities and the workflows and the cyber environment. And now the introduction for us of Cyan our AI agent it helps us actually operate across all of the advisor workflows and deliver contextual real-time intelligence.

Speaker #3: And so specific to your question, when we look at just Cyan, and we look at how does that improve the operation effectiveness of an advisor's practice, well, a couple of our high-impact use cases that we're launching with include the ability to identify growth opportunities for advisors in their practice.

Speaker #3: It's a crisper way to reflect the integrated nature of our technology ecosystem, which we think is a really good reflection for advisors. And as they get in, they see the connectivity across all of that.

Speaker #3: As they probe into it, natural language processing to identify ways that they can grow actions they can take and actually one of the things that's really impressive is a button that simplifies the next actions they should take to prioritize improving their growth against the verticals that they choose to grow.

Speaker #3: And so, specific to your question, when we look at just Cyan and we look at how that improves the operational effectiveness of an advisor's practice, well, a couple of our high-impact use cases that we're launching with include the ability to identify growth opportunities for advisors in their practice.

Speaker #3: Second, there's other things that we've done there to make them more efficient in their practice. We introduced Jump as a way to record and then get actions coming out of meetings.

Speaker #3: But now we're introducing through Cyan the ability to take financial plans that they've already developed to synthesize those plans for insights to the end investor as well as ways to deliver that to the advisor that are much more efficient than they're doing today.

Speaker #3: And one other high-value use case is automatic sorry, automating routine maintenance tasks. So instead of having to go into the system to make address changes, we actually just go into the agent, say you're making an address change, you indicate the change of address, and then it's automatically propagated across the entire ecosystem of latitude.

Speaker #3: Second, there's other things that we've done there to make them more efficient in their practice. We introduced Jump as a way to record and then get actions coming out of meetings.

Speaker #3: I think these are good examples of a firm that is positioning itself to lead in technology making investments enabling being enabled through AI that further differentiate us from our competitive set.

Speaker #3: And as we've not only shown our capabilities, Devin, but has actually we've demonstrated our roadmap for AI to advisors who are considering the firm, it usually is a significant point of differentiation between us and the other firms they're evaluating.

Speaker #4: Excellent. Thanks, Rich.

Speaker #3: I think these are good examples of a firm that is positioning itself to lead in technology, making investments enabled through AI that further differentiate us from our competitive set.

Speaker #1: Thank you. And our next question comes from the line of Michael Cho from JP Morgan. Your question, please.

Speaker #6: Hi. Good evening. Thanks for taking my question. I just wanted to touch on pricing as well. Not so much the work that you're doing now, Rich, but the pricing adjustments that you announced last year and you implemented some earlier this year.

Speaker #3: And as we've not only shown our capabilities, Devin, but as we've actually demonstrated our roadmap for AI to advisors who are considering the firm, it usually is a significant point of differentiation between us and the other firms they're evaluating.

Speaker #6: And Matt, you called out the other part starting in July as well. So just given some time has passed, have you seen any adjustments in advisor behavior since announcement and implementation?

Speaker #4: Excellent. Thanks, Rich.

Speaker #1: Thank you. And our next question comes from the line of Michael Cho from JP Morgan. Your question, please.

Speaker #6: And any key takeaways here from an LPL perspective? And do you see other opportunities to potentially mark to market maybe some of LPL's more enhanced offerings, maybe in light of latitude and Cyan as well?

Speaker #6: Hi, good evening. Thanks for taking my question. I just wanted to touch on pricing as well. Not so much the work that you're doing now, Rich, but the pricing adjustments that you announced last year and you implemented some earlier this year.

Speaker #6: Thanks.

Speaker #3: Yeah, Michael. I mean, I'll just start resummarizing for you. I think the headline is things have played out as we expected. So I think when we announced those, we walked through the three.

Speaker #3: I'll take you through the components. But we had expected a net improvement in margins kind of incorporating everything that you had just walked through of about 1 percentage point.

Speaker #6: And any key takeaways here from an LPL perspective? And do you see other opportunities to potentially mark-to-market maybe some of LPL's more enhanced offerings, maybe in light of latitude and Cyan as well?

Speaker #3: And that's largely what's played out. So just as a reminder, there was one in each of the in Q1, Q2, and Q3. So Q1 was the new fees on brokerage accounts.

Speaker #6: Thanks.

Speaker #3: In Q2, it was fees on the direct mutual fund business. And those two things together led to an increase in service and fee revenue by about $40 million per quarter.

Speaker #2: Yeah, Michael. I mean, I'll just start re-summarizing for you. I think the headline is things have played out as we expected. So I think when we announced those, we walked through the three.

Speaker #2: I'll take you through the components. But we had expected a net improvement in margins, kind of incorporating everything that you had just walked through of about 1 percentage point.

Speaker #3: And then the last change coming, what I talked about in prepared remarks, that's coming in Q3, was reductions on pricing in our advisory platforms, really to make them even though they're already competitive, even more competitive in that those pricing reductions will show up as an increase in payout of about $20 million a quarter.

Speaker #2: And that's largely what's played out. So, just as a reminder, there was one in each of Q1, Q2, and Q3. So, Q1 was the new fees on brokerage accounts.

Speaker #3: So the net of all of that is around $20 million a quarter, $80 million annualized, right in line with where we thought. And to the broad point, I think it just positions as we talked about when we announced them, the first two fee increases were really to bring fees in those two areas in line with market.

Speaker #2: In Q2, it was fees on the direct mutual fund business. And those two things together led to an increase in service and fee revenue by about $40 million per quarter.

Speaker #2: And then the last change coming—what I talked about in prepared remarks that's coming in Q3—was reductions on pricing in our advisory platforms, really to make them, even though they're already competitive, even more competitive.

Speaker #3: And then the third area in advisory, I think, is making a platform that was already competitive competitively and value prop-wise even more competitive. So I think it's really played out how we thought.

Speaker #2: And that those pricing reductions will show up as an increase in payout of about $20 million a quarter. So the net of all of that is around $20 million a quarter, $80 million annualized, right in line with where we thought.

Speaker #6: Thanks, Rich.

Speaker #1: Our next question comes from the line of Craig Siegenthaler from Bank of America. Your question, please.

Speaker #2: And to the broad point, I think it just positions as we talked about when we announced them, the first two fee increases were really to bring fees in those two areas in line with market.

Speaker #6: Thanks. Good evening, everyone. So similar question, but I want to see if you could potentially change your revenue share arrangements with asset managers and I wonder if you view this as a future earnings lever.

Speaker #2: And then the third area in advisory, I think, is making a platform that was already competitive—competitively and value prop-wise—even more competitive. So I think it’s really played out how we thought.

Speaker #6: Given that your size has increased and you're a scaled retail distribution partner. So and what I'm getting at is could LPL increase its underlying economics on ETFs mutual funds and SMAs?

Speaker #6: Thanks, Rich.

Speaker #1: Our next question comes from the line of Craig Feventhal from Bank of America. Your question, please.

Speaker #6: Thank you.

Speaker #7: Thanks. Good evening, everyone. So, similar question, but I want to see if you could potentially change your revenue share arrangements with asset managers, and I wonder if you view this as a future earnings lever.

Speaker #3: Yeah. Hey, Craig. This is Matt. I'll just underscore kind of what Rich went through in detail as far as what we're looking at on economics and things we would change.

Speaker #3: That's where our energy is. I think that there was other things that once we're done with concluding is there's something to do there or not.

Speaker #3: If there was other things to look at, we'd take that up. But I think when you look at our overall economics, the thing that we're staring at is cash sweep that I just underscore everything that Rich said.

Speaker #7: Given your size increase and that you're a scaled retail distribution partner, what I’m getting at is: Could LPL increase its underlying economics on ETFs, mutual funds, and annuities?

Speaker #7: Thank you.

Speaker #1: Thank you. And our next question comes from the line of Mike Brown from UBS. Your question, please.

Speaker #2: Yeah. Hey, Craig. This is Matt. I'll just underscore kind of what Rich went through in detail as far as what we're looking at on economics and things we would change.

Speaker #6: Great. Good afternoon. Thanks for taking my question. You've observed that your advisors, when they adopt your business solutions, they tend to grow two times faster than advisors that do not.

Speaker #2: That's where our energy is. I think that there were other things that, once we're done with concluding, is there something to do there or not?

Speaker #2: If there was other things to look at, we'd take that up. But I think when you look at our overall economics, the thing that we're staring at is cash sweep that I just underscore everything that Rich said.

Speaker #6: As you think about the Commonwealth cohort and the transition there, what are your expectations for their adoption of your subscription-based services like your CFO and marketing solutions?

Speaker #1: Thank you. And our next question comes from the line of Mike Brown from UBS. Your question, please.

Speaker #6: And do you think that there's kind of a similar opportunity set for the Commonwealth advisors?

Speaker #6: Great. Good afternoon. Thanks for taking my question. You've observed that your advisors, when they adopt your business solutions, tend to grow two times faster than advisors that do not.

Speaker #3: Hey, Mike is rich. Thanks. So first, you're right. We observed that as advisors, actually begin to outsource more of the work that they do themselves.

Speaker #3: They put themselves in a position to go to the core advice delivery and you see that not only through marketing and CFO, you see it also through OCIO solutions, para-planning solutions.

Speaker #6: As you think about the Commonwealth cohort and the transition there, what are your expectations for their adoption of your subscription-based services, like your CFO and marketing solutions?

Speaker #3: And so any time when an advisor is thoughtfully reorganizing the structure of their office, to drive productivity and drive deeper engagement with clients, we see accelerated growth.

Speaker #6: And do you think that there's kind of a similar opportunity set for the Commonwealth advisors?

Speaker #3: Hey, Michael, Rich, thanks. So first, you're right. We observed that as advisors actually begin to outsource more of the work that they do themselves.

Speaker #3: We also see that inside of our managed models that have a lot of those offerings embedded inside of that. So when you look at our strategic wealth services as well as our LINSCO offering, we see faster growth there as well because of the support system that's provided and the solutions that are embedded in those offerings.

Speaker #3: They put themselves in a position to go to the core advice delivery, and you see that not only through marketing and CFO, you see it also through OCIO solutions, para-planning solutions.

Speaker #3: Commonwealth actually has a subset of the business solutions capabilities and services in fact, they have some that are differentiated from us around practice management and some growth support as well.

Speaker #3: And so, any time an advisor is thoughtfully reorganizing the structure of their office to drive productivity and deeper engagement with clients, we see accelerated growth.

Speaker #3: And so there are elements already. We see that Commonwealth advisors are faster growing advisors. More productive advisors. And so they have been embedding those capabilities and driven outsized same-store sales growth.

Speaker #3: We also see that inside of our managed models that have a lot of those offerings embedded inside of them. So when you look at our Strategic Wealth Services as well as our Linsco offering, we see faster growth there as well because of the support system that's provided and the solutions that are embedded in those offerings.

Speaker #3: We would anticipate as we get into conversations further conversations with Commonwealth advisors, there's a lot of our solutions that are attractive to them. I think the CFO and marketing solutions are attractive.

Speaker #3: Commonwealth actually has a subset of the business solutions capabilities and services. In fact, they have some that are differentiated from us around practice management and some growth support as well.

Speaker #3: I think one to maybe put on your radar screen is liquidity and succession solution. Which we find also accelerates growth in advisors' practices as they go through liquidity and succession.

Speaker #3: And so, there are elements already. We see that Commonwealth advisors are faster-growing advisors—more productive advisors. And so, they have been embedding those capabilities and have driven outsized same-store sales growth.

Speaker #3: We find that there's a pretty strong demand from Commonwealth advisors as Commonwealth was building a solution that was similar but wasn't as robust and wasn't as far along in its deployment as our liquidity and succession solutions are.

Speaker #3: We would anticipate, as we get into further conversations with Commonwealth advisors, that a lot of our solutions will be attractive to them. I think the CFO and marketing solutions are attractive.

Speaker #3: So I'd say across a cadre of solutions, there is an appetite from Commonwealth advisors. I would say it skews more heavily towards liquidity and succession because they had some of the solutions that we have already available inside of Commonwealth Financial Networks.

Speaker #6: Great color. Thank you for all that, Rich.

Speaker #1: Thank you. And our next question comes from the line of Brennan Hawken from BMO. Your question, please.

Speaker #6: Hi. Thanks for taking my question. This is a little bit more of an abstract question, but among some investors, there's some debate about whether or not AI tools could eventually lead to some hybrid solutions which marry AI with advisors and potentially come at a lower price point.

Speaker #3: So, I'd say across a cadre of solutions, there is an appetite from Commonwealth advisors. I would say it skews more heavily towards liquidity and succession, because they had some of the solutions that we have already available inside of Commonwealth Financial Network.

Speaker #6: Great caller. Thank you for all that, Rich.

Speaker #6: You talked to a lot of advisors. What's the advisor view on that? Is that considered a real risk? And is there anything that could be done to insulate from this risk if it does end up emerging?

Speaker #1: Thank you. And our next question comes from the line of Brendan Hawken from BMO. Your question, please.

Speaker #4: Hi, thanks for taking my question. This is a bit more of an abstract question, but among some investors, there's some debate about whether or not AI tools could eventually lead to some hybrid solutions, which marry AI with advisors and potentially come at a lower price point.

Speaker #6: Thanks.

Speaker #3: Hey, Brennan. It's Rich. Thanks for the question. I think when you look into AI solutions, what you see kind of either look at it as a glass half full or a glass half empty.

Speaker #3: Let me give you the glass half full case. What you're going to see is a pretty significant enhancement in the workflows that exist, certainly first inside of our ecosystem, our ability to process work, our ability to drive straight through processing, our ability to make it just easier to do business.

Speaker #4: You talked to a lot of advisors. What's the advisor view on that? Is that considered a real risk? And is there anything that could be done to insulate from this risk if it does end up emerging?

Speaker #3: And when you look at the workflows that exist inside of an advisor's practice, scheduling, preparing for meetings, running alternative investment solutions, actually running the solution set you see there's material opportunity to improve the efficiency of an advisor's practice.

Speaker #4: Thanks.

Speaker #2: Hey, Brendan. It's Rich. Thanks for the question. I think when you look into AI solutions, what you see is kind of you either look at it as a glass half full or a glass half empty.

Speaker #2: Let me give you the glass half full case. What you're going to see is a pretty significant enhancement in the workflows that exist—certainly, first inside of our ecosystem—our ability to process work, our ability to drive straight-through processing, our ability to make it just easier to do business.

Speaker #3: When you take those two things together, we stare into what we think will be a pretty significant enhancement in the availability of capacity at an advisor's practice level.

Speaker #3: In fact, many of the folks that sit inside of an advisor's practice think of the CSAs. We think there's a potential for them to get much more productive and move to much more interesting and challenging work of beginning themselves to deliver advice.

Speaker #2: And when you look at the workflows that exist inside of an advisor's practice, scheduling, preparing for meetings, running alternative investment solutions, actually running the solution set, you see there's material opportunity to improve the efficiency of an advisor's practice.

Speaker #3: And so as we look at the automation of an advisor's practice of the workflows inside of the practice, we think that there's going to be capacity to serve more end investors.

Speaker #2: When you take those two things together, we stare into what we think will be a pretty significant enhancement in the availability of capacity at an advisor's practice level.

Speaker #3: And so we haven't seen a material reduction over the last several decades in spite of many new innovations that the advisory fee is driven down in any material way.

Speaker #2: In fact, many of the folks that sit inside of an advisor's practice think of the CSAs. We think there's a potential for them to get much more productive and move to much more interesting and challenging work of beginning themselves to deliver advice.

Speaker #3: But I would tell you the offset to that would be we think even if were that to occur, the advisors inside of their practice would have the ability to grow the practice and grow the number of clients and the assets they serve and serve them in ways that they serve their best clients today.

Speaker #2: And so, as we look at the automation of an advisor's practice—of the workflows inside of the practice—we think that there's going to be capacity to serve more end investors.

Speaker #3: And so we view delivering the automation and AI as enhancing the advisor's practice. We think it will strengthen their ability to go to market and it will actually allow them to spend more time in advice delivery, in context setting, and helping take decisions with end investors.

Speaker #2: And so, we haven't seen a material reduction over the last several decades, in spite of many new innovations, that the advisory fee has been driven down in any material way.

Speaker #2: But I would tell you the offset to that would be, we think even if that were to occur, the advisors inside of their practice would have the ability to grow the practice and grow the number of clients and the assets they serve, and serve them in ways that they serve their best clients today.

Speaker #3: So that's the theory to our case I think we believe strongly in it. And that is largely what we hear from our advisors. They are more excited about the adoption of AI than they are scared of the impact of AI.

Speaker #3: And we support that perspective as well.

Speaker #2: And so we view delivering the automation and AI as enhancing the advisor's practice. We think it will strengthen their ability to go to market and it will actually allow them to spend more time in advice delivery, in context setting, and helping take decisions with end investors.

Speaker #6: That's interesting color. Thanks, Rich.

Speaker #1: Thank you. And our next question comes from the line of Michael Typers from Morgan Stanley. Your question, please.

Speaker #5: Hey, good evening. Thanks for taking the question. Just wanted to ask about expense growth. Just curious how you would characterize that underlying pace of four to five and a half percent core DNA growth that you referenced relative to a multi-year profile.

Speaker #2: So that's the theory to our case. I think we believe strongly in it, and that is largely what we hear from our advisors. They are more excited about the adoption of AI than they are scared of the impact of AI.

Speaker #5: And then when you layer in AI initiatives, I guess how meaningful could that be on a multi-year profile when you look out? And as you think about AI, I guess where do you see some of the biggest opportunities to change processes and workflows that could be the most meaningful and really drive the needle on the bottom line as you look out over the next couple of years?

Speaker #2: And we support that perspective as well.

Speaker #4: That's interesting color. Thanks, Rich.

Speaker #1: Thank you. And our next question comes from the line of Michael Typers from Morgan Stanley. Your question, please.

Speaker #3: Yeah, Michael. I think that I mean, the opportunity is huge. I mean, I think like most folks, I think you're going to be balanced in how much you're investing to improve an experience give you more capacity to invest and drive your value proposition versus expand your op margin.

Speaker #5: And then, when you layer in AI initiatives, I guess, how meaningful could that be on a multi-year profile when you look out and as you think about AI?

Speaker #3: And I think you see us balancing that. I think just looking at just this year, I think you're starting to see a good taste of what we can do and deliver I think relatively reasonable expense growth, especially when you look at the last few years.

Speaker #5: I guess, where do you see some of the biggest opportunities to change processes and workflows that could be the most meaningful, and really drive the needle on the bottom line, as you look out over the next couple of years?

Speaker #3: While at the same time, delivering an increased capability set starting to reinvigorate organic growth and doing that all, I think at that four to five and a half percent where we estimate now to be, is quite a good balance.

Speaker #2: Yeah, Michael. I think that I mean, the opportunity is huge. I mean, I think like most folks, I think you're going to be balanced in how much you're investing to improve an experience and give you more capacity to invest and drive your value proposition versus expand your op margin.

Speaker #3: When you think about AI, so just kind of the end of your question there on the areas. I mean, I think for us, I'd put it in three broad categories where first is directly serving the advisor.

Speaker #2: And I think you see us balancing that. I think, just looking at this year, you're starting to see a good taste of what we can do and deliver—I think, relatively reasonable expense growth, especially when you look at the last few years.

Speaker #3: And Rich hit on this a little bit. And talking about latitude, talking about scion. But those are things where I'm just underscoring what he said, like the benefits of that are not only on the value proposition for advisors, but they lead directly to efficiencies on our side.

Speaker #2: While at the same time, delivering an increased capability set starting to reinvigorate organic growth and doing that all, I think at that four to five and a half percent where we estimate now to be, is quite a good balance.

Speaker #3: Things that would typically have been a phone call or an email and multiple steps and processes on both sides can just be completely processed through by that agent.

Speaker #2: When you think about AI—so just kind of the end of your question there on the areas—I mean, I think for us, I'd put it in three broad categories. First is directly serving the advisor.

Speaker #3: I think the second one is just pointing all of that that where right at our internal infrastructure or back office, meaning service and operation, that can just that's where it can materially improve the cost structure and the efficiency.

Speaker #2: And Rich hit on this a little bit, talking about latitude and talking about science. But those are things where I'm just underscoring what he said. The benefits of that are not only on the value proposition for advisors, but they lead directly to efficiencies on our side.

Speaker #3: And then the last one would just be in our technology development, right? The coding and the tech builds itself. Where we're already seeing the ability to not only build things much cheaper than they were historically, but build them at a faster pace.

Speaker #2: Things that would typically have been a phone call or an email, and involved multiple steps and processes on both sides, can now be completely processed through by that agent.

Speaker #3: And I think you put those things together and I think it goes back to a little bit of my headline point in the answer that not only can we drive efficiencies in the cost side, but we're going to be in a position to be able to improve and deliver a value prop, I think better and faster than most.

Speaker #2: I think the second one is just pointing all of that right at our internal infrastructure and our back office, meaning service and operations.

Speaker #2: That can just that's where it can materially improve the cost structure and the efficiency. And then the last one would just be in our technology development, right?

Speaker #3: So I think it's an exciting view over the next several years of being able to do that. But hopefully that helps with color on how we think about it.

Speaker #2: The coding and the tech builds itself. Where we're already seeing the ability to not only build things much cheaper than they were historically, but build them at a faster pace.

Speaker #5: Great. Thank you.

Speaker #1: Thank you. And our next question comes from the line of Benjamin Budish from Barclays. Your question, please.

Speaker #2: And I think you put those things together and I think it goes back to a little bit of my headline point in the answer that not only can we drive efficiencies in the cost side, but we're going to be in a position to be able to improve and deliver a value prop, I think better and faster than most.

Speaker #7: Hi, good evening. And thanks for taking my question. In the prepared remarks you talked about a pricing change and the ICA that's going to benefit a little bit in Q3.

Speaker #7: I don't know if you could explain the mechanics of that change a little bit more? How does it work? What's the rationale for doing it?

Speaker #2: So I think it's an exciting view over the next several years, being able to do that. Hopefully, that helps provide some color on how we think about it.

Speaker #7: Is there any particular behavior you're looking to incent? How should we be thinking about that going forward? Thank you.

Speaker #3: Yeah, you bet Ben. I mean, I think it's primarily driven by the Commonwealth integration. So when you look at as we prepared onboard Commonwealth, how we LPL have priced cash-based tiering has been based on the level of AUM that the household has with us.

Speaker #5: Great. Thank you.

Speaker #1: Thank you. And our next question comes from the line of Benjamin Butish from Barclays. Your question, please.

Speaker #6: Hi, good evening, and thanks for taking my question. In the prepared remarks, you talked about a pricing change and the ICA that's going to benefit a little bit in Q3.

Speaker #3: Commonwealth prices it based on the actual level of cash balances that they have. So what we're doing going forward is just shifting to an integrated approach that is cash-based balance tiering.

Speaker #6: I don't know if you could explain the mechanics of that change a little bit more. How does it work? What's the rationale for doing it?

Speaker #6: Is there any particular behavior you're looking to incent? How should we be thinking about that going forward? Thank you.

Speaker #3: And that also aligns us with our independent peers. So it's got a benefit there. Now, as to why that leads to an increase in returns, when you look at the price tiering, right, to perhaps state the obvious, you pay less on smaller balances and more on the larger balances.

Speaker #2: Yeah, you bet. I mean, I think it's primarily driven by the Commonwealth integration. So when you look at, as we prepared to onboard Commonwealth, how we at LPL have priced cash-based tiering has been based on the level of AUM that the household has with us.

Speaker #3: And as we've talked a bit about, I think for a long time, our advisors have their clients in cash and relatively small levels. We're probably at about two years now where the average amount of cash per account at LPL has been around $5,000.

Speaker #2: Commonwealth prices it based on the actual level of cash balances that they have. So, what we're doing going forward is just shifting to an integrated approach that is cash-based, balanced tiering.

Speaker #2: And that also aligns us with our independent peers. So it's got a benefit there. Now, as to why that leads to an increase in returns, when you look at the price tiering, right?

Speaker #3: It really hasn't moved below that for two years. So the net result of that is more cash at those lower tiers. And that will lead to an increase in the ICA yield on a run rate basis of about 20 basis points.

Speaker #2: So perhaps state the obvious. You pay less on smaller balances and more on the larger balances. And as we've talked a bit about, I think for a long time, our advisors have their clients in cash and relatively small levels.

Speaker #3: And those changes that are referred to are going to go affect in August. So kind of in the middle of the quarter. So you can view that as half of it coming in Q3.

Speaker #3: And then the second half coming in Q4.

Speaker #2: We're probably at about two years now where the average amount of cash per account at LPL has been around $5,000. It really hasn't moved below that for two years.

Speaker #7: Okay, great. Thank you.

Speaker #1: Thank you. And our next question comes from the line of Jeff Schmidt from William Blair. Your question, please.

Speaker #2: So, the net result of that is more cash at those lower tiers, and that will lead to an increase in the ICA yield on a run-rate basis of about 20 basis points.

Speaker #7: Hi, thank you. Question on the institutional channel. You've sort of taken a pause, it sounds like, due to the Commonwealth deal. How would you characterize your pipeline today?

Speaker #2: And those changes that are referred to are going to go into effect in August, so kind of in the middle of the quarter. So you can view that as half of it coming in Q3.

Speaker #7: Has that been building? And are you seeing demand for outsourcing increase versus a year ago? Or has it been fairly stable?

Speaker #2: And then the second half coming in Q4.

Speaker #6: Yeah, hey Jeff. Thanks for the question. So first, you're right. I mean, we had to take an intentional pause. Not necessarily in our engagement in the marketplace, but around our ability to onboard.

Speaker #5: Okay, great. Thank you.

Speaker #1: Thank you. And our next question comes from the line of Jeff Schmidt from William Blair. Your question, please.

Speaker #6: Hi, thank you. Question on the institutional channel. You've sort of taken a pause, it sounds like, due to the Commonwealth deal. How would you characterize your pipeline today?

Speaker #6: We just put first and foremost making sure that we got the Commonwealth onboarding capability build ahead of everything else. And so it did put a pause on how we progressed opportunities in the pipeline.

Speaker #6: Has that been building? And are you seeing demand for outsourcing increase versus a year ago, or has it been fairly stable?

Speaker #6: If I reflect on maybe just for a second, kind of our positioning in the marketplace. So first, in that institutional market, we are the absolute leader in the institutional space and have been as such for years.

Speaker #5: Yeah, hey Jeff, thanks for the question. So first, you're right. I mean, we had to take an intentional pause—not necessarily in our engagement in the marketplace, but around our ability to onboard.

Speaker #6: And the institutions we serve support 590 billion of client assets in their wealth businesses. And that's multiples greater than those of our next closest competitor.

Speaker #5: We just put first and foremost making sure that we got the Commonwealth onboarding capability built ahead of everything else. And so, we did put a pause on how we progressed opportunities in the pipeline.

Speaker #6: As we position, in our conversations and actually with folks who have onboarded with us, we have a really compelling value proposition. We accelerate the growth of the firm as they come on.

Speaker #5: If I reflect on it maybe just for a second—kind of our positioning in the marketplace. So first, in that institutional market, we are the absolute leader in the institutional space and have been for years.

Speaker #6: We actually improve their margins. And we reduce regulatory and compliance risk. And maybe most importantly, across that, especially when you think about us relative to competitors, we've proven our ability time and again to actually transition very complex, large-scale organizations and their wealth businesses.

Speaker #5: And the institutions we serve support 590 billion of client assets in their wealth businesses. And that's multiples greater than those of our next closest competitor.

Speaker #6: Seamlessly. And so maybe lastly in that, we also have signature clients. And two, I would say, two of our more recent joins in Prudential and First Horizon two clients that I think are thriving on our platform and reflect the ability that have demonstrated that improved efficiency as well as accelerated growth.

Speaker #5: As we position in our conversations, and actually with folks who have onboarded with us, we have a really compelling value proposition. We accelerate the growth of the firm as they come on.

Speaker #5: We actually improve their margins, and we reduce regulatory and compliance risk. And maybe most importantly, especially when you think about us relative to competitors, we've proven our ability time and again to actually transition very complex, large-scale organizations and their wealth businesses seamlessly.

Speaker #6: So you put that all together, I think what we have is a building of our reputation in the marketplace to serve large institutions we're more engaged now certainly than we were a year ago with large institutions, not only with the number of institutions, but actually the size and complexity of some of those institutions continues to grow.

Speaker #5: And so maybe lastly in that, we also have signature clients and two, I would say, two of our more recent joins in Prudential and First Horizon—two clients that I think are thriving on our platform and reflect the ability, that have demonstrated that improved efficiency as well as accelerated, I think, what we have is a building of our reputation in the marketplace to serve large institutions.

Speaker #6: That's probably emphasized more even on the product manufacturer side the bank market is a tried and true market as we can you'll see us continuing to talk to larger and larger banks.

Speaker #6: And maybe let's talk just about banks for a second. So much of the focus on banks is on efficiency. And driving greater efficiency. And in the wealth business, that's no exception.

Speaker #5: We're more engaged now, certainly than we were a year ago with large institutions—not only with the number of institutions, but actually the size and complexity of some of those institutions continues to grow.

Speaker #6: So the conversations we're in are with larger institutions on the bank side, who are looking at efficiencies and looking at ways for which they can compete and be competitive across the board and largely that includes outsourcing wealth.

Speaker #5: That's probably emphasized even more on the product manufacturer side. The bank market is a tried-and-true market, as you'll see us continuing to talk to larger and larger banks.

Speaker #6: And so we continue to see a building the pipeline there. And we actually now have cleared the decks for us to have the ability to have more material conversations.

Speaker #6: So feeling better about where we are there than we were certainly a year ago.

Speaker #5: And maybe let's talk just about banks for a second. So much of the focus on banks is on efficiency and driving greater efficiency, and in the wealth business, that's no exception.

Speaker #7: Great. Thank you.

Speaker #1: Thank you. And our next question comes to the line of Bill Katz from TD Callan. Your question, please.

Speaker #5: So the conversations we're in are with larger institutions on the bank side, who are looking at efficiencies and looking at ways for which they can compete and be competitive across the board and largely that includes outsourcing wealth.

Speaker #8: Great. Thank you very much. Good evening, everybody. Just maybe a two-part if I could squeeze it in. On CFN, excuse me, can you let me know what the cash is as a percentage of client AUA?

Speaker #5: And so we continue to see a building of the pipeline there, and we actually now have cleared the decks for us to have the ability to have more material conversations.

Speaker #8: And then Matt, I'd be curious if you could give us an update on how things have been trending into July on both flows and client cash.

Speaker #5: So, feeling better about where we are there than we were, certainly, a year ago.

Speaker #8: Thank you.

Speaker #5: All right. Very aggressive, Bill. Operator said one. I'll do two. Don't worry about it. Look, on Commonwealth, their cash balances have the whole time they've been with us are a little bit below ours.

Speaker #6: Great. Thank you.

Speaker #1: Thank you. And our next question comes from the line of Bill Katz from TD Cowen. Your question, please.

Speaker #7: Great, thank you very much. Good evening, everybody. Just maybe a two-part, if I could squeeze it in. On CFN—excuse me—can you let me know what the cash is as a percentage of client AUA?

Speaker #5: So we've been we're at a little above 2%. They're a little bit above a little bit above 1%. So they just have much, much lower cash balances.

Speaker #5: And it's always been that way. With respect to how the third quarter is going so far, so for July, on the cash side, a couple of days remaining, but it's shaping up as you would expect in the first month of the quarter, which is primarily the impact of advisory fees.

Speaker #7: And then, Matt, I'd be curious if you could give us an update on how things have been trending into July, on both flows and client cash.

Speaker #7: Thank you.

Speaker #2: All right. Very aggressive, Bill. Operator said one, I'll do two. Don't worry about it. Look, on Commonwealth, their cash balances, the whole time they've been with us, are a little bit below ours.

Speaker #5: So those hit in the first month. That reduced cash by 2.8 billion. Outside of that, cash balances have been flat. So if you put those two things together, July cash has decreased by only the impact of fees and that puts cash at around 54.1 billion.

Speaker #2: So we've been—we're at a little above 2%. They're a little bit above, a little bit above 1%. So they just have much, much lower cash balances.

Speaker #2: And it's always been that way. With respect to how the third quarter is going so far—for July, on the cash side, there are a couple of days remaining, but it's shaping up as you would expect for the first month of the quarter, which is primarily the impact of advisory fees.

Speaker #5: On the organic growth side, similar impact, month one is usually the lowest month of the quarter because advisory fees hit in the first month.

Speaker #5: Outside of that, we are seeing organic growth continuing to pull through as we've noted on the recruiting picking up. And you put those two things together, that would put July organic growth in the zone of around 3%.

Speaker #2: So those hit in the first month. That reduced cash by $2.8 billion. Outside of that, cash balances have been flat. So if you put those two things together, July cash has decreased by only the impact of fees, and that puts cash at around $54.1 billion.

Speaker #8: Thank you for coming in the two-parter.

Speaker #5: You're welcome.

Speaker #1: Thank you. And our next question comes to the line of Mike Brown from UBS. Your question, please.

Speaker #2: On the organic growth side, similar impact: month one is usually the lowest month of the quarter because advisory fees hit in the first month.

Speaker #4: Okay, great. Thanks for taking my follow-up. I wanted to just follow up on Steven's question at the beginning. And I guess as you evaluate the potential transition toward platform fees, can you clarify should investors view that work you're doing today as primarily developing a playbook that would only be implemented if the competitive dynamics or client behavior created meaningful pressure on cash sweep economics?

Speaker #2: Outside of that, we are seeing organic growth continuing to pull through, as we've noted on the recruiting picking up. When you put those two things together, that would put July organic growth in the zone of around 3%.

Speaker #7: Thank you for joining us for the two-parter.

Speaker #2: You're welcome.

Speaker #1: Thank you. And our next question comes from the line of Mike Brown from UBS. Your question, please.

Speaker #4: Or is management increasingly inclined to make that shift proactively kind of regardless of whether those pressures materialize? And then if it's the latter, what gives you confidence that moving first creates value rather than a disadvantage, particularly if competitors are slower to follow or really choose not to make a similar change at all?

Speaker #5: Okay, great. Thanks for taking my follow-up. I wanted to just follow up on Steven's question at the beginning. And I guess, as you evaluate the potential transition toward platform fees, can you clarify—should investors view that work you're doing today as primarily developing a playbook that would only be implemented if the competitive dynamics or client behavior created meaningful pressure on cash sweep economics?

Speaker #7: Yeah, hey, Mike. Thanks a lot. And I think, Bill, look at what Mike did. He actually re-entered the queue and got his second question in.

Speaker #7: So learning event too for all of us. So look, the question is, whether we are going to be a leader or a follower? I think the most important thing is we actually need to get the right answer.

Speaker #5: Or is management increasingly inclined to make that shift proactively, regardless of whether those pressures materialize? And then, if it's the latter, what gives you confidence that moving first creates value rather than a disadvantage, particularly if competitors are slower to follow or choose not to make a similar change at all?

Speaker #7: And that's actually the work that we're doing. It's why the evaluation is so comprehensive in nature. As I mentioned before, well, with 32,000 advisors, with 1,000 institutions, we are a market leader.

Speaker #6: Yeah. Hey, Mike, thanks a lot. And I think, Bill, look at what Mike did—he actually re-entered the queue and got his second question in.

Speaker #7: We're already in that position. And we're comfortable making decisions that lead the market if that's where things land.

Speaker #6: So, I'm learning events too, for all of us. So, look, the question is whether we are going to be a leader or a follower?

Speaker #6: I think the most important thing is, we actually need to get the right answer, and that's actually the work that we're doing. It's why the evaluation is so comprehensive in nature.

Speaker #8: Got it. Thank you, Rich.

Speaker #1: Thank you. This does include the question and answer session of today's program. I'd like to hand the program back to Rich Steinmeier for any further remarks.

Speaker #6: As I mentioned before, with 32,000 advisors and 1,000 institutions, we are a market leader. We're already in that position, and we're comfortable making decisions that lead the market if that's where things land.

Speaker #7: Thank you, operator. And thank you all for joining. We look forward to speaking to you again in October. And have a great night.

Speaker #7: Got it. Thank you, Richard.

Speaker #1: Thank you. This does include the question-and-answer session of today's program. I'd like to hand the program back to Rich Steinmeier for any further remarks.

Speaker #2: Thank you, operator. And thank you all for joining. We look forward to speaking with you again in October. Have a great night.

Q2 2026 LPL Financial Holdings Inc Earnings Call

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